Tone Company is the defendant in a lawsuit filed by Witt in 2019 disputing the validity of copyright held by Tone. December 31, 2019, Tone determined that Witt would probably be successful for an estimated amount of P400, 000. Appropriately, a P400, 000 loss was accrued by a charge to income for the year ended December 31, 2019.On December 31, 2020, Tone and Witt agreed to a settlement providing for cash payment of P250, 000 by Tone to Witt, and transfer of Tone’s copyright to Witt. The carrying amount of the copyright on tone’s accounting records was P60, 000
Tone Company is the defendant in a lawsuit filed by Witt in 2019 disputing the validity of copyright held by Tone. December 31, 2019, Tone determined that Witt would probably be successful for an estimated amount of P400, 000. Appropriately, a P400, 000 loss was accrued by a charge to income for the year ended December 31, 2019.On December 31, 2020, Tone and Witt agreed to a settlement providing for cash payment of P250, 000 by Tone to Witt, and transfer of Tone’s copyright to Witt. The carrying amount of the copyright on tone’s accounting records was P60, 000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Tone Company is the defendant in a lawsuit filed by Witt in 2019 disputing the validity of copyright held by Tone. December 31, 2019, Tone determined that Witt would probably be successful for an estimated amount of P400, 000. Appropriately, a P400, 000 loss was accrued by a charge to income for the year ended December 31, 2019.On December 31, 2020, Tone and Witt agreed to a settlement providing for cash payment of P250, 000 by Tone to Witt, and transfer of Tone’s copyright to Witt. The carrying amount of the copyright on tone’s accounting records was P60, 000 on December 31, 2020. What would be the effect on the settlement on Tone’s income before tax in 2020?
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